Serbia-Montenegro: What's Behind The 'Robbery Of The Century'?

Defense Minister Prvoslav Davinic
Serbia and Montenegro has been rocked in recent weeks by a scandal involving corruption in the Defense Ministry. The affair has already begun to impact on Serbian domestic politics and on relations between Belgrade and Podgorica.

Defense Minister Prvoslav Davinic said in Belgrade on 8 September that he has handed his resignation to President Svetozar Marovic, RFE/RL's South Slavic and Albanian Languages Service reported (see "RFE/RL Balkan Report," 9 September 2005). The minister added, however, that he informed the president and Serbian Prime Minister Vojislav Kostunica that initial investigations into a corruption scandal allegedly involving his ministry's purchase of unnecessary equipment for the army at inflated prices from the Mile Dragic company in Zrenjanin have revealed no criminal wrongdoing.

The Defense Ministry meanwhile announced that it is forming its own commission to investigate the allegations. The Serbian government agreed at a meeting that the Mile Dragic affair must be investigated completely, adding that the matter is now in the hands of a special prosecutor whose findings are expected soon. In Podgorica, the Montenegrin governing coalition reiterated its position that it will not take a stand until more information is known.

But Davinic's resignation was not discussed at the 8 September meeting of the government of Serbia and Montenegro. Before the resignation can take effect, the cabinet must accept it and nominate a successor. Parliamentary speaker Zoran Sami then has between five and 15 days in which to place the issue on the legislature's agenda. If the parliament approves the change with a majority among both Serbian legislators and Montenegrin ones, it takes effect. Until it does, Davinic remains in office.

It is not clear exactly how matters will unfold. Davinic previously suggested that he would resign under certain conditions but later withdrew the offer. Furthermore, there appears to be no consensus among the leaders in Belgrade and Podgorica regarding a successor. The Belgrade-born Davinic is a specialist in nuclear disarmament and international relations with degrees from former Yugoslav and U.S. universities. He worked for the United Nations from 1976-99.

The affair that seems likely to topple him from his latest post developed in earnest on 5 September, when Serbia's special prosecutor's office for combating organized crime told the police to begin collecting documents relating to the recent decision by Davinic to award a $370 million contract to Mile Dragic. The Serbian government called on the relevant government bodies not to carry out the agreement.

Serbian Finance Minister Mladjan Dinkic had disclosed on 2 September that the contract requires the government to buy over a five-year period 74,000 combat helmets and 69,000 flak jackets for an army of 28,000 at a time when a former manager at Mile Dragic said that the army already has 50,000 Dragic-supplied helmets and a similar number of flak jackets in its warehouses. The new contract also calls on the military to buy 500 pilot's jackets for an air force of about 30 planes, many of which are probably not operational. Dinkic called the affair the "robbery of the century."

Davinic thereupon accused Dinkic of "high treason" for revealing "military secrets." Some media reports suggested that part of the payment to Mile Dragic would be in real estate, of which the military owns some choice parcels.

Serbian Prime Minister Vojislav Kostunica said on 2 September that the wastefulness attributed to Davinic cannot be allowed in a country where "every single dinar" must be spent wisely. Serbian President Boris Tadic, who is a former defense minister, said that Davinic's position has become untenable, adding that the scandal must not be allowed to weaken the joint state. Speaker Sami of the joint parliament said on 4 September that Davinic should go.

The contract requires the government to buy over a five-year period 74,000 combat helmets and 69,000 flak jackets for an army of 28,000.

Dinkic argued that Serbia pays more than 94 percent of the defense budget and appealed to Montenegro's leaders not to try to keep Davinic in office. The Democratic Party of Serbia, (DSS) the Democratic Party, the Serbian Renewal Movement (SPO), and Davinic's own G-17 Plus party called for his resignation. G-17 Plus, of which Dinkic is also a member, expelled Davinic from its ranks.

On 5 September, however, Montenegrin Prime Minister Milo Djukanovic told reporters in Niksic that the controversy surrounding Davinic shows that Serbian leaders want to control the joint state in order to "preserve their greater Serbian illusions." On 3 September, the joint state's Deputy Foreign Minister Predrag Boskovic, who is from Montenegro, dismissed calls to replace Davinic, saying in Podgorica that "a rotation of ministers is not a priority for Montenegro."

The controversy showed no signs of abating, despite a statement by Marovic on 6 September that it could cause "the collapse" of the joint state.

Dinkic said meanwhile that Defense Ministry officials continue to deny his investigators access to documents relating to the deal. He added that Serbian tax police have nonetheless determined that the company overcharged the government by about $100 million over the firm's usual prices. For example, he noted, Mile Dragic billed the ministry $312 per helmet instead of the usual $206, and $2,121 per flak jacket rather than $780. Elsewhere, the Mile Dragic company again denied that the charges it agreed with the ministry were excessive.

Djukanovic said in Podgorica that Dinkic is wrong in asserting that the equipment deal was largely the work of Montenegrin officials in the Defense Ministry. Djukanovic said that Dinkic used a "tired argument" in suggesting that Montenegrins enjoy parity with Serbs in decision making in the ministry even though Serbia pays nearly 95 percent of the costs.

Meanwhile in Belgrade, Deputy Prime Minister Miroljub Labus, who heads G-17 Plus, denied recent charges by Djukanovic that the Davinic affair amounts to an attempt by Serbia to take control of the joint state's institutions. Elsewhere, the opposition Serbian Radical Party (SRS) called for an investigation of the affair by the joint state's parliament.

Serbian Prime Minister Vojislav Kostunica said the wastefulness cannot be allowed in a country where "every single dinar" must be spent wisely.

Sources close to Dinkic and Kostunica portray the affair as an effort to show that the military is finally being made accountable to civilian authorities and is no longer allowed to spend as it pleases. But other speculation in Belgrade suggests that the Mile Dragic affair is part of a much larger picture involving not only corruption in the arms trade but also jockeying among Serbian politicians in anticipation of elections later in 2005 and rivalry between the leaderships in Montenegro and Serbia.

According to one theory, the $370 million contract was part of a larger deal in which large quantities of ammunition from the army's stocks were sold to a foreign buyer -- possibly a contractor working in Iraq -- with Mile Dragic acting as a go-between. The contract allegedly amounted to a compensation agreement for Mile Dragic for its role in a deal in which ammunition was sold below market prices in order to secure a partnership with the foreign buyer. According to this view, much money passed through many hands in the course of the exchange, and some of it found its way into private pockets.

Some observers in Belgrade say that, if this theory is true, it would not be a unique among cases of corruption in Serbia, most of which never come to public attention. What allegedly brought this particular affair to the surface, according to this theory, was a desire of Dinkic to upstage Labus within G-17 Plus in preparation for the upcoming elections. Davinic was considered a protege of Labus.

Another factor in the publicity surrounding the Mile Dragic affair, according to some Belgrade observers, was Kostunica's intention to reduce Montenegrin influence in the Defense Ministry by ousting a minister who had supposedly let his Montenegrin deputy Vukasin Maras run things behind the scenes. This theory also maintains that Kostunica had a particular score to settle with Davinic and Maras over their decision to conduct an investigation into the use of a military helicopter to help build a controversial Serbian Orthodox chapel in Montenegro without the permission of the authorities there (see "RFE/RL Balkan Report," 12 August 2005). Kostunica, according to this interpretation, is close to the Serbian Orthodox hierarchy in Montenegro under Metropolitan Amfilohije.

The Mile Dragic affair has so far produced more questions and theories than hard facts and answers. Given the potential financial and political stakes involved, it is likely to make headlines in Serbia for some weeks to come.